June 13 (Bloomberg) -- JPMorgan Chase & Co. Chief Executive
Officer Jamie Dimon said a proposed U.S. ban on proprietary
trading may have limited the bank’s derivatives-trading losses
of at least $2 billion.

“It may very well have stopped parts of what this
portfolio morphed into,” Dimon said, referring to the so-called
Volcker rule during testimony at the Senate Banking Committee
today. “It’s possible. I just don’t know.”

Dimon has been among the most vocal bankers in challenging
stricter regulation as lawmakers seek to prevent a repeat of the
credit crisis that led to bailouts of some of the largest
financial firms. The CEO publicly asked Federal Reserve Chairman
Ben S. Bernanke last year if he “has a fear like I do” that
overzealous regulation will hinder an economic recovery.

The timing of New York-based JPMorgan’s blunders “plays
right into the hands of a bunch of pundits” who are pushing for
tighter oversight, Dimon said on May 10, when he announced the
trading loss.

Five U.S. regulators are preparing to complete the so-called Volcker rule ban on proprietary trading and limits on
investments in private equity and hedge funds. The rule, named
for former Fed Chairman Paul Volcker, is intended to reduce
risky trading by banks with federally insured deposits and
access to the central bank’s discount window.

Softening Urged

JPMorgan, Goldman Sachs Group Inc. and other banks have
urged regulators to relax parts of the 298-page rule.

Dimon testified that the bank’s chief investment office,
the source of the trading loss, is set up to invest money and
earn income. “This particular synthetic credit portfolio was
intended to earn a lot of revenue if there was a crisis,” Dimon
said. “I consider that a hedge.”

The bank’s losses have spurred debate over whether hedging
of aggregate or portfolio risks should be allowed. Fed Governor
Daniel Tarullo said June 6 that regulators will include
“substantive guidelines” to distinguish between hedging and
proprietary trading.

‘Explain Themselves’

“If a firm said we are doing this because it is a hedge,
they would be required to explain to themselves, importantly, as
well as to the primary supervisor, what the hedging strategy
was” and make sure it didn’t create new exposures, Tarullo
said.

Dimon acknowledged he has trouble making a bright-line
distinction between proprietary trades and hedges. Hedges of
portfolio or aggregate risks should be allowed under the Volcker
rule, he said.

“Portfolio hedging, which I think should be allowed, is
something that will protect the company in bad outcomes,” Dimon
said. “It doesn’t mean you’re always going to be exactly right,
but you can analyze that.”

U.S. Senator Jeff Merkley, the Oregon Democrat pushing for
tighter restrictions on banks’ bets, said this morning that
JPMorgan’s hedges were too risky.

“Portfolio hedging is just a name for saying anything
goes, and we’ll continue proprietary trading,” Merkley said in
an interview on Bloomberg Television.

Merkley, who co-wrote the Volcker provision in the Dodd-Frank Act along with Senator Carl Levin, a Michigan Democrat,
has said that regulators’ draft rule has loopholes that would
allow banks to maintain much of their proprietary trading
operations.